Leveraged, Inverse ETFs to Track Biotech

ProShares launched the first ETFs with leveraged and inverse exposure to the biotechnology sector Thursday on the Nasdaq Stock Market.

The Ultra Nasdaq Biotechnology (BIB) seeks to provide 200% of the daily return of the Nasdaq Biotechnology Index for a single day. The UltraShort Nasdaq Biotechnology (BIS) tries to return a negative 200% of the index.

According to Bloomberg, the Nasdaq Biotechnology Index is the most widely used benchmark for U.S. biotechnology stocks based average daily dollar volume. The index contains Nasdaq-listed companies classified according to the industry classification benchmark as either biotechnology or pharmaceuticals and calculated under a modified capitalization-weighted methodology. For a full list of companies in the index.

Since ProShares introduced the first leveraged and inverse ETFs in the U.S. in 2006, they have been the leading manager in the space, according to Lipper.

A good caveat to remember: due to the compounding of daily returns, the returns of leveraged and inverse ETFs over periods longer than one day will likely differ in amount and possibly direction from the target return for the same index over the same period. These are not buy-and hold investments. Investors need to monitor their holdings on a daily basis.

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